Settlement Plan Would Give Bulk of Merrill’s $30 Million to Schools

Under a settlement plan drafted Thursday, cities, school districts and other government agencies that lost money in Orange County’s 1994 financial collapse would receive most of the $30 million that Merrill Lynch & Co. paid to avoid any grand jury charges for its dealings with the county.

The complex settlement between the county and the other investors in the ill-fated county pool, which negotiators said they hoped to finalize today or Monday, caps nearly two months of private talks and public debate over who is entitled to the Merrill Lynch money.

Cities and school districts have argued that, under terms of the county’s bankruptcy recovery plan, the money belonged to them, since their losses have not yet been fully reimbursed and they are in line to be repaid before the county from any litigation proceeds.

Some county officials, however, insisted that the $30 million remain in county government coffers, because the settlement money from Merrill Lynch was not the same as proceeds from litigation.

The settlement hammered out this week involves not only the Merrill Lynch money, but an additional $25 million to $30 million in interest and cash from a variety of county and special district accounts that came to the attention of negotiators in just the last few days.

Pool investors said they were entitled to some of this interest and cash, and officials from both the cities and the county agreed to address both issues in the negotiations.

“I think we are very close to resolving those differences and having a deal. We are just crunching the numbers and finalizing the details,” said Irvine City Manager Paul Brady after a meeting Thursday with other pool investors. “We have a package that makes a lot of sense.”

Brady declined to provide details of the settlement plan, and officials in county Chief Executive Officer Jan Mittermeier’s office could not be reached for comment Thursday.

But several sources familiar with the negotiations said that pool investors would receive about two-thirds of the Merrill Lynch settlement plus a smaller portion of the interest and cash from the disputed accounts.

Orange County’s 28 school districts, which are still due $110 million of the money they lost in the investment pool, would receive the most money under the deal. But special districts, cities, redevelopment agencies and other pool investors also would receive some money under the proposed settlement, according to the sources.

“We have a plan that brings additional [money] to all investors--schools, cities, special districts,” Brady confirmed. “But we can’t get into the details of the proposal at this time.”

The county would retain a portion of the Merrill Lynch settlement. But sources said the deal benefits the county in other ways as well.

While most of pool investors have received 80% to 90% of their investment back, they will see the remainder only if the county is successful in its civil litigation against Merrill Lynch and others it holds responsible for the financial collapse.

Under the county’s bankruptcy recovery plan, the first proceeds from the civil litigation would go to school districts, followed by other pool investors and finally the county.

By making a partial payment to cities and school districts now, the county essentially advances the time when it will receive some litigation proceeds, the sources said.

The settlement proposal comes as several supervisors began to express frustration at the long delays in deciding the matter.

Board of Supervisors Chairman William G. Steiner called for schools to receive most of the $30 million as a “good-faith gesture” immediately after Dist. Atty. Michael R. Capizzi announced the controversial settlement in June.

Supervisors Thomas W. Wilson and Todd Spitzer also have expressed interest in giving the money to schools, and the three have been pressing Mittermeier to resolve the issue.

Other county officials favor keeping the $30 million with the county to pay for critical projects such as expanding jail space, constructing a new South County courthouse and retiring bankruptcy debts early.

Once the settlement plan is finalized by both sides, it would require the approval of the five-member Board of Supervisors.